The Central Bank announced a sharp decline in yuan holdings in Russian banks
The Russian banking system has faced a sharp decline in Chinese yuan liquidity reserves, according to statistics from the Central Bank of the Russian Federation.
As of April 1, banks had about $13 billion in yuan in foreign correspondent accounts, up from more than $30 billion last October.
For half a year, the yuan’s “air cushion” has been blown almost three times, even though the share of the Chinese currency in trading and stock exchange operations has increased significantly.
In the first quarter, 18% of payments for Russian exports and 27% for imports were made in yuan (compared to 16% and 23% at the end of 2022, respectively), and the share of yuan-to-ruble exchange operations on the Moscow exchange reached 32% of total foreign exchange turnover.
“This is not surprising given that the Russian Federation is reorienting its exports and imports to China,” said Natalia Orlova, chief economist at Alfa Bank: Russian-Chinese trade in the first quarter increased by 41% y/y.
However, the balance of this trade has shifted in favor of China: it supplies more goods to the Russian Federation than it buys. As a result, 25 billion yuan, or $3.7 billion in yuan excess of imports over exports, went from Russia to China in six months, Egor Susin, managing director of GPB Private Banking, calculated.
In other words, as a result of trading around the dollar, the Russian banking system is losing yuan reserves. Susin stresses that there is a “moderate deficit” of the Chinese currency in the market so far.
This is evidenced by the fact that banks are increasingly applying for yuan loans from the Central Bank, he notes: “The balance of banks is rather the minimum necessary to handle trade.”
In the current situation, there is no source of liquidity in the new yuan, unless the Ministry of Finance and the Central Bank increase the sale of foreign currency from the National Wealth Fund, says Yuri Tulinov, senior vice president of the market research and strategy office at Rosbank.
However, government sales of the yuan fell steadily for the third month in a row. Since May 10, the Central Bank, in the interest of the Ministry of Finance, has reduced the sale of the yuan by almost half to 2 billion rubles. daily, although in March it offered currencies worth 5.4 billion rubles.
The population’s appetite for the yuan is also steadily growing: in April, purchases made by individuals through the stock exchange and major banks reached $0.7 billion (54.2 billion rubles), the highest level since the beginning of 2022, notes Orlova. In January-April, Russian citizens bought yuan for 1.5 billion dollars, which is three times more than in the same period a year earlier.
All of this makes a shortage of the Chinese currency almost inevitable, said Tulinov: “Russian banks will constantly face a shortage of the yuan until the balance of export-import flows in this currency stabilizes.”